Overview of the President’s Working Group Report on Digital Assets
The President’s Working Group on Digital Asset Markets unveiled a report titled “Strengthening American Leadership in Digital Financial Technology” on July 30. This document, which stems from January’s Executive Order 14178, presents an extensive array of recommendations aimed at regulating digital assets and blockchain technology within the United States. The following sections address critical questions regarding the report’s potential impacts on businesses, financial institutions, and investors.
Purpose and Key Focus Areas of the Report
The report serves to satisfy the working group’s directive to propose regulatory and legislative measures that encourage the responsible development of digital assets and blockchain technologies. While it does not enact immediate changes to existing regulations, it is anticipated that significant federal bodies will act on recommendations that do not necessitate new legislation. The main priorities highlighted in the report are as follows: safeguarding the rights of individuals and businesses to utilize open blockchain networks and manage their digital assets independently; enhancing the international standing of the U.S. dollar through stablecoin support; banning the creation or adoption of central bank digital currencies (CBDCs) in the U.S.; clarifying the legal framework surrounding digital asset ownership and self-custody; ensuring equitable treatment of digital asset businesses by banks and regulators; and promoting U.S. leadership in digital asset innovation, payments, and combating illicit finance.
Structuring Digital Asset Markets: Recommendations
The report introduces a classification system for digital assets comprising three categories: security tokens overseen by the SEC, commodity tokens regulated by the CFTC, and commercial or consumer use tokens, including stablecoins and utility tokens. This classification aims to minimize regulatory overlap and prevent arbitrage. Furthermore, it suggests: granting special exemptions from securities registration for certain digital asset distributions, including safe harbors for new projects that are not yet fully operational or decentralized; allowing non-security digital assets tied to investment contracts to be traded on non-SEC platforms soon after their issuance; exempting specific decentralized finance (DeFi) service providers from broker-dealer, exchange, and clearing agency registration requirements; updating definitions and regulations for exchanges, transfer agents, and self-hosted wallet providers; and encouraging coordinated rulemaking between the SEC and CFTC, including the establishment of regulatory sandboxes and pathways for innovation.
Immediate Recommendations for Market Participants and Regulators
Key immediate recommendations entail: creating exemptions from registration requirements for digital asset offerings, which would include safe harbors for early-stage projects and clear guidelines for airdrops and rewards from decentralized networks; allowing non-security digital assets to be traded on non-SEC platforms after issuance and providing DeFi service providers with certain registration exemptions; modernizing market regulations by redefining “exchange facility,” supporting tokenized securities and digital assets, updating transfer agent rules, and clarifying when wallet providers need to register as broker-dealers; outlining how investment firms and advisors can securely hold digital assets classified as securities, and determining whether state-chartered trusts can serve as qualified custodians or banks; and the CFTC is encouraged to clarify the classification and trading of digital assets as commodities, which includes rules around leveraged trades, customer identification, and the role of commodity pool operators, as well as how its regulations apply to DeFi, smart contracts, and decentralized autonomous organizations (DAOs).
Coordination Between the SEC and CFTC
The report emphasizes the need for collaboration between the SEC and CFTC in their rulemaking and public comment processes. It advocates for the creation of regulatory sandboxes or safe harbors with well-defined eligibility criteria and exit strategies. Additionally, it suggests considering a specialized category for qualified participants to trade digital asset derivatives via regulated intermediaries.
Long-Term Recommendations for Digital Asset Market Structure
For the long term, the report proposes: enabling digital asset firms to provide trading, custody, and brokerage services under one umbrella, complete with robust safeguards and transparent disclosures; updating CFTC regulations to accommodate blockchain-based derivatives, including requirements for clearing, reporting, and margin, even in non-intermediated settings; and if Congress fails to act, the SEC and CFTC should leverage their existing authority to clarify regulations and support responsible innovation.
Market Structure Legislation Insights
The report points to the Digital Asset Market Clarity Act of 2025 (CLARITY) as a fundamental framework for market structure. It suggests dividing oversight responsibilities between the SEC and CFTC, safeguarding self-custody rights, and facilitating efficient trading and DeFi operations. The report urges Congress to ensure that federal law supersedes state law for firms registered with the SEC and CFTC while also establishing clear and efficient licensing and reporting frameworks for digital asset intermediaries.
Addressing DeFi and Innovation
The report offers recommendations for regulating DeFi based on the actual control over assets, the capability to modify software, and the level of centralization. It suggests implementing tailored regulations that reflect the unique aspects of DeFi rather than applying conventional financial regulations indiscriminately. Furthermore, it emphasizes the importance of preventing abuse by ensuring that products cannot be structured merely to evade legal obligations.
Accounting Recommendations
The Financial Accounting Standards Board (FASB) has provided guidance on assessing digital assets at fair value. The report advises FASB to gather additional feedback on various accounting aspects, such as the appropriate timing for recognizing or removing digital assets from balance sheets, how to account for tokens created and issued by firms, whether stablecoins should be classified as cash equivalents, and how to account for tokens that provide utility or access without explicit legal rights. It also highlights the necessity for updated accounting and auditing standards as the use of digital assets continues to expand.
Changes Recommended for Banks and Digital Asset Activities
The report calls for the establishment of clear directives regarding permissible digital asset activities for banks, which should encompass custody, utilizing third-party providers, holding reserves of stablecoins, and engaging in pilot programs. It advocates for equitable treatment of various banking types through technology-neutral oversight, as well as transparent and timely procedures for acquiring charters, insurance, and Reserve Bank master accounts, proposing automatic approval if deadlines are missed unless extraordinary circumstances arise. Additionally, it recommends implementing risk-based capital and liquidity requirements for digital asset activities in accordance with international standards and removing outdated limitations on state-chartered banks while ensuring consistent training for examiners.
Stablecoins and Payments Analysis
The report supports the GENIUS Act, which stipulates that U.S. dollar-backed stablecoins must be fully backed by high-quality, liquid assets that can be redeemed 1:1 for cash. It requires monthly disclosures regarding reserves and prohibits misleading claims about government backing. The act also mandates that stablecoin issuers be licensed in the U.S. or comply with equivalent foreign standards, prioritizes claims of stablecoin holders during insolvency, and requires custodians to segregate reserves. Furthermore, it clarifies that U.S.-licensed payment stablecoins are neither securities nor commodities, imposes stringent anti-money laundering (AML) and counter-terrorism financing (CFT) regulations on issuers, including those based abroad with U.S. customers, and promotes competition and innovation in payment systems while prohibiting government-issued CBDCs and focusing on private sector solutions.
Combatting Illicit Finance
The report strongly advocates for the rapid implementation of the GENIUS Act’s AML regulations for stablecoin issuers. It calls for updated guidance from the Financial Crimes Enforcement Network (FinCEN) regarding digital assets, which would introduce new categories for digital asset financial institutions. It also recommends legislation to clarify when U.S. AML regulations apply to foreign actors, ensuring Americans retain the right to self-custody their digital assets and clarifying that software providers lacking full control are not classified as money transmitters. Moreover, it emphasizes improved information sharing between digital asset and traditional financial entities, greater involvement in FinCEN’s information sharing initiatives, and new rules allowing the Treasury to block or condition certain digital asset transfers linked to illicit activities, even outside the conventional banking system. Additionally, the report calls for updated victim compensation and asset forfeiture laws concerning digital assets and expanded anti-tipping off and theft regulations to encompass digital asset businesses, along with flexible, principles-based cybersecurity standards and enhanced sharing of cyber threat intelligence.
Tax Recommendations Overview
The report emphasizes the need for guidance on the taxation of digital asset transactions, covering areas such as staking, mining, and wrapping. It suggests treating digital assets as a distinct asset class for taxation, with rules akin to those applied to stocks or commodities. The report seeks clarity regarding the tax implications of stablecoins, including whether they should be viewed as debt, and addresses wash sale and anti-bearer bond regulations. It proposes applying wash sale rules to digital assets (excluding stablecoins) and updating broker reporting requirements. Additionally, it recommends treating loans of actively traded digital assets similarly to securities loans, providing guidance for small digital asset receipts (such as airdrops, staking, and mining), and revising rules regarding the timing of income from mining and staking. It also calls for the mandatory reporting of foreign digital asset accounts and streamlining reporting forms for the IRS and FinCEN while ensuring that broker and business reporting regulations remain consistent and not overly burdensome.
Conclusion and Key Takeaways
The White House’s digital asset roadmap indicates a transition towards clearer and more supportive regulations for digital assets and blockchain technology in the U.S. Federal agencies, including the Treasury, SEC, CFTC, OCC, FDIC, and others, are expected to act swiftly on the report’s proposals. Additionally, Congress may explore new legislation to clarify market structure, tax regulations, and measures to combat illicit finance. Businesses are encouraged to reassess their compliance, risk management, and reporting practices in light of these recommendations while remaining vigilant for further regulatory and legislative updates.
